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2017-05-12 17:00
By Yoon Sung-won



Google Korea CEO John Lee
Cisco Korea President Cho Bum-coo
President Moon Jae-in and the new administration are recommended to take measures against tax evasion by foreign enterprises. They may refer to a recent case where Google was charged 300 million euro in a penalty tax.

Besides Google, multinational enterprises including Apple, Facebook, Microsoft, Oracle and Cisco have repeatedly been accused of dodging taxes although they generate handsome profits in Korea.

The new head of state has no reason not to follow the case in Italy because there are similar controversies in Korea involving multinational companies. If the Italian case is not enough for Moon to take heart, here are some other examples.

Zero tolerance against tax evasion

On May 4, Google said it will pay 300.6 million euro in taxes to make up for money it didn’t pay over the last decade. Italy’s tax authority investigated the IT giant, alleging that the company had not paid tax on the 1 billion euro in sales it generated in the country between 2002 and 2015.

The Italian tax authority argued that Google’s sales generated by selling paid mobile applications or advertisements to Italian consumers were subject to taxation in the country.

Google had made Italian consumers directly deal with its European headquarters in Ireland through the internet. In this way, Google redirected the sales in Italy to its branch in Ireland, which has only a 12.5 percent of corporate tax rate compared to Italy’s 24 percent.

Countries other than Italy, such as Britain, France, Russia, Australia and Indonesia are also pushing to levy tax on multinational enterprises which have avoided taxation by finding legal loopholes.

On April 2015, Britain introduced a law that levies a 25 percent penalty tax on multinational enterprises if they avoid tax by recording sales generated in Britain in another country. Following this law, the British government collected 130 million pounds from Google in January last year.

France is pushing to collect 1.6 billion euro from Google. The French prosecution raided Google’s office in Paris over alleged tax evasion and money laundering charges in May last year. In June, Google’s office in Madrid was also raided by the Spanish police for alleged tax evasion.

Last August, the European Commission (EC) ordered Apple to pay 13 billion euro of tax to Ireland. It said the Irish government’s excessive tax benefits for Apple were a violation of European Union rules. Both Apple and the Irish government appealed the order.

The EC is also looking into Amazon for allegedly cutting taxes on its gains generated in Europe by registering it to its subsidiary in Luxemburg, which has a lower tax rate.

In 2015, the Organization for Economic Cooperation and Development and the G20 member nations started global cooperation against such tax-dodging by multinational enterprises.

The enterprises have also been criticized for sidestepping Korea’s Tax Law.

Korean cases

Many foreign countries are increasingly tightening their taxation rights on multinational enterprises by strengthening investigations. The government should be able to collect the tax from multinational enterprises here on the massive gains they generate in Korea.

The country’s tax authority is actually very good at this, so I wonder why it turns a blind eye only on foreign players.

According to the Korea Mobile Internet Business Association (MOIBA), Google generated about 4.5 trillion won in volume last year from the Google Play mobile app market in Korea. This is 58.2 percent of 7.6 trillion won of the nation’s total mobile app market in 2016.

Considering that Google collects a 30 percent fee for the mobile app market, its sales is estimated at 1.34 trillion won last year. The association projected that Google’s mobile app market sales will reach 1.6 trillion this year.

Google distributes mobile apps made by Korean developers not through Google Korea but Google Asia Pacific in Singapore.

Despite its heavy estimated gains here, the National Tax Service (NTS) has had difficulty in monitoring Google Korea as it is not obliged to open its books on revenue and taxation as it is a limited liability company.

As a result, the country fails to collect proper taxes from Google. The new president is required to change this.

For Oracle, the NTS recently levied 314.7 billion won in corporate tax on Oracle Korea for the money not paid between 2008 and 2014. Oracle filed a suit at Seoul Administrative Court in February to request the overturning of the tax authority’s order.

Cisco, the dominant provider of network equipment in Korea, has also been accused of sidestepping tax here by making its smaller local distribution partners directly make deals with suppliers in other countries with lower tax rates.

The usual suspect in this kind of debate has remained silent about the issue. I think the tax authority should not let it do so.


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